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Friday, 11 January 2013

Oil-rig price war looms on China shipyards' foray

New entrants lower prices to win deals, eroding margins at Keppel, SembMarine


[HONG KONG] China's shipbuilders are set to spark a price war in the oil-rig market.

With orders for new ships plunging to an eight-year low in 2012, China Rongsheng Heavy Industries Group Holdings Ltd and its local rivals are foraying into the offshore business, lured by a market that will reach about US$328 billion in 2017. The new entrants are lowering prices to grab contracts, hurting margins at Singapore-based Keppel Corp and Sembcorp Marine Ltd, the world's two biggest rig makers.

"It's like moving from one bottomless pit to another," said Park Moo Hyun, an analyst at E*Trade Securities Co in Seoul. "Chinese shipyards are competitively trying to get into what they see as a lucrative business. But the consequence of that is they could end up distorting the whole market."

China Rongsheng, the nation's biggest yard outside state control, announced in October its first order to make a tender barge and rival Yangzijiang Shipbuilding Holdings Ltd got its first rig contract last month. Shanghai-based China Rongsheng warned in December of posting a loss in 2012 after three straight years of profits.


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